This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is expressed as an annual percentage rate, such as 20% of the cost of the inventory. This is used in the formula for determining the optimum ordering (or manufacturing) quantity of an item. See economic order quantity (EOQ) model.
Another connotation of this term is the cost at which the inventory is reported in the company’s general ledger accounts and on its balance sheet. To learn more, see Explanation of Inventory and Cost of Goods Sold for a discussion of the factors that determine the amounts at which inventory is reported.
"I am currently a staff accountant. I just LOVE AccountingCoach because not only did it help me get into the accounting industry, but it helped me get the job I have today. I am now retired, and my background was in human resources, but I wanted to get into accounting. I didn't want to go to college before seeing if I would like it, so I started to apply for jobs in accounting and quickly saw that it required a degree. I researched for a creative way to get into the industry and came across AccountingCoach online. I decided to give it a try because I wanted to get some skills, and thank goodness I did! I went through the modules, which taught me the basic skills of accounting. I took the quizzes and used all the resources, and it helped so much. I did this for 6 months before I started applying for accounting jobs and landed my first accounting position in accounts payable. From there, I continued to progress using AccountingCoach to assist me along the way and have worked my way up to the position of Staff Accountant. I have now been in the industry for over 5 years, and I love it. AccountingCoach is the best resource out to get your foot in the door and to progress in your position." - Michelle M.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: